That word slips out. This time it was used by a Lib Dem peer on the Equality and Human Rights Commission. Baroness Hussein-Ece tweeted: "Help. Trapped in a queue in chav land. Woman behind me explaining latest EastEnders plot to mate while eating largest bun I've ever seen." When challenged, she said she hadn't meant chav in any derogatory way. Of course not. But take a look at the venomous class-hate site ChavTowns to see what lies beneath.

She would presumably never say nigger or Paki, but chav is acceptable class abuse by people asserting superiority over those they despise. Poisonous class bile is so ordinary that our future king and his brother played at dressing up and talking funny at a chav party mocking their lower class subjects.

Wrapped inside this little word is the quintessence of Britain's great social fracture. Over the last 30 years the public monstering of a huge slice of the population by luckier, better-paid people has become commonplace. This is language from the Edwardian era of unbridled snobbery. When safely reproduced in Downton Abbey, as the lady sneering at the scullery maid or the landowner bullying his workers, we are encouraged to look back smugly as if these shocking class differences were long gone. The form and style may have changed – but the reality of extreme inequality and self-confident class contempt is back.

That brief period between 1917 and 1979, when British wealth, trembling in fear of revolution, ceded some power, opportunity and money to the working classes is over. There is now no politics to express or admit the enormity of what has happened since the 1980s – how wealth and human respect drained from the bottom to enrich and glorify the top.

Public perception of the shape of society has been so warped that most no longer know how others live, where they stand in relation to the rest, who earns what or why. By deliberate misrepresentation, drip, drip, week after week, the powerful interests of wealth deliberately distort reality. The best weapon in the class armoury fosters loathing of a "feral underclass" – its size vague and never delineated, relying on anecdotes of extreme dysfunction, of which any society has plenty. One sneer cleverly elides millions of low-earning workers in equal chav contempt for all living on an estate, drawing any benefit – even if in work – as cheats, addicts and layabouts. That's the way to divert resentment from those above, to those below.

Here's a prime example. On this quiet bank holiday weekend, Iain Duncan Smith's department deposited a dirty little non-story on the doormat of his favourite newspapers. Headlined "No More Excuses", the press release lists "the 10 top worst excuses used by benefit cheats". They include "I wasn't using the ladder to clean windows, I carried it for my bad back", and "It wasn't me working, it was my identical twin".

There are no figures to say how many people put up the sort of ludicrous pleas heard daily in any magistrate court. Department for Work and Pensions figures are anyway wobbly. Last year David Cameron declared war on benefit fraudsters, calling in special agents to deal with £5.2bn fraud and error in the benefits bill – worth, he said, 200 secondary schools and 150,000 nurses. Cathy Newman's excellent Channel 4 FactCheck found £1.5bn of that was fraud and the rest error.

This latest DWP press release says fraud is now £1.6bn. That's a walloping sum – but let's put it in proportion. It's still only 0.7% of the benefits bill. Many a company would be proud of such a low loss from theft. The attorney general's National Fraud Authority found £38.4bn lost to fraud last year. Most fraud is in the finance industry – £3.6bn – though it's only 9% of the economy. That's more than is stolen in retail – a larger sector. Meanwhile, £15bn was officially caught in tax fraud, while estimated tax avoidance is £70bn.

But never mind, benefit stories are eye-catching and they do the job intended: they make us mean and ungenerous, stifling protest at Duncan Smith's monumental £18bn benefits cut. Such tales spread a wider loathing of a whole perceived class, of anyone on benefits. With most of the poor in work, that includes battalions of the low paid whose miserable pay is topped up by tax credits to stop them starving. But a few choice anecdotes are worth a ton of statistics. That ladder! Ha!

I am on the circulation list for all DWP press releases, so why didn't I get this one and why wasn't this tacky rubbish put up on their website? "We only sent it out to a couple of our key contacts," said the duty press officer yesterday – that was the Mail and the Telegraph. "It was a soft consumer story, a PR story we sold proactively, so we didn't sell it any wider." So that's how Iain Duncan Smith does it these days, "selling" to friendly buyers only.

Anecdotes smearing all on housing benefit or tax credits help make the working class disappear. In his 1997 triumph, Tony Blair declared class over, we're all middle class – except for a "socially excluded" lumpen rump. "The new Britain is a meritocracy," he declared – not as a future goal but as a fact. So who are the 8 million in manual jobs and the 8 million clerks and sales assistants who make up half the workforce?

In my book Hard Work, I reported on the remarkably strong work ethic of those in jobs paying little more than benefits, the carers and cleaners doing essential work well, despite lack of money or respect. In Unjust Rewards, David Walker and I charted how since the decline of the unions people have lost their bearings on class and incomes: the mega-wealthy are clueless about ordinary earnings and even the poor are misled into thinking their pay is quite middling.

Aspiration and social mobility are the useful mirage, laying blame squarely with individuals who should try harder to escape their families and friends, instead of seeking great fairness for all. It suits life's winners to pretend this is a meritocracy: we well-off deserve our luck, anyone can join us if they try.

A superb and angry new book, Chavs by Owen Jones, published next week, pulls together the welter of evidence on the demonisation of the working class. Read it for a strong analysis of the conspiracy to deny the very existence of a working class, even to itself. New Labour colluded with this vanishing act but Ed Miliband's espousal of the "squeezed middle" may be tiptoeing towards giving a voice back to the great disappeared.